Sigma Leasing Corporation
(SLC) is the second leasing
company which has decided to issue Right Shares at discount. While the
decision will help in containing financial cost, it is also the step to
meet minimum capital requirement fixed by Securities and Exchange
Commission of Pakistan (SECP). Since the Corporation enjoys virtually
100 per cent recovery track record and has been paying modest dividend,
analysts expects that most of the shareholders will exercise the right.
The current offer at Rs 7 per share is about 30 per cent lower than the
break-up value at the end of June 2001, the year end for the
Corporation.

Most of the leasing companies, who have less than Rs
200 million paid-up capital were trying very hard to convince the SECP
to extend the deadline fixed, June 30, 2001. However, the SECP was point
blank in informing leasing companies about no further extension in time.
At the same time it was evident that no more mergers and acquisitions
were possible. Therefore, the SECP asked each company to submit plan for
enhancing paid-up capital. Most of the companies have either received
approval from the SECP or would be getting shortly. Only few companies
are left which do not have any plan at all.

Initially the SECP was reluctant in allowing the
leasing companies to offer Right Shares at a discount. However, with the
help and active participation of Leasing Association of Pakistan, the
SECP consented to allow leasing companies to issue Right Shares at a
discount. SLC has decided to issue Right Shares in two tranches by
September 30, 2002, first being for Rs 50 million is already underway.
The issue has been underwritten by Chairman and Vice Chairman. Warrants
have been dispatched.

According to Muhammad Nasim Khan, Chief Executive of
Sigma Leasing, "Initially we had asked the SECP to allow SLC to
issue Right Shares at 50 per cent discount. However, the SECP approved
the issue at 30 per cent discount. The SLC share is quoted at Rs 10.68
at local stock exchanges. Therefore, the existing shareholders will be
getting the shares at a discount. The book value is much higher than the
price at which existing shareholders will be getting the shares."

According to a sector analyst, "All those
companies which decide to offer Right Shares at discount will benefit in
two ways: 1) liquidity position will improve and 2) financial expenses
will come down. Due to improved liquidity, companies can immediately pay
off the expensive debts, write more leases and not to renew the COIs
which mature. In a nutshell, leasing companies will be able to curtail
financial charges. This will help them to cut mark-up rates as well as
pay improved dividend to shareholders."

Referring to SLC's decision to raise capital in two
tranches, another analyst, said, "The management has made a prudent
decision. As the economic activity in the country is expected to
increase, SLC will be able to meet fund requirement at a very nominal
cost, improve its margins and retain larger amount at the end of next
financial year. The SLC has to issue the second tranche before September
30, 2002. This gives SLC ample time to negotiate better credit lines.

Underwriting of the issue by Chairman and Vice
Chairman may seem contradictory to the basic concept on broad-based
shareholding or against the interest of minority shareholders. However,
an analyst said, "It is selecting a lesser evil. However, it
clearly shows commitment of the sponsors." He was also of the
opinion that sponsors have the option to off load their holding, at a
later stage. Though SLC is considered a relatively illiquid scrip, if
quoted price remain high, above par value, it offers an opportunity to
sponsors and other shareholders to make capital gains.

YEAR 2001 RESULTS

The year ending on June 30, 2001 was a difficult
period for all the leasing companies, SLC being no exception. Net profit
for this period was Rs 12 million as against Rs 20 million for the
previous year. While SLC managed to underwrite over Rs 200 million fresh
leases, bulk of the business was generated in second half, Jan-June
period. This can be attributed to the changed policy of the GoP
regarding initial depreciation. However, this issue has been resolved to
some extent.

HIGHLIGHTS OF SECP APPROVAL

* Right shares at 30 per cent discount.
* To be issued in two equal tranches, Rs 50 million each, up to
September 30, 2002.
* The sponsors to fully subscribe their right shares entitlement.* First tranche to be underwritten by Chairman and Vice Chairman.* Underwriters not allowed to charge any Underwriting commission
and Takeup commission.* That portion of the second tranche, which will be offered to
shareholders other than sponsors, will also be underwritten by
sponsoring directors at Rs 7.00 per share before its offer to the
shareholders.